Both vacant land and vacant buildings require insurance, but there is a difference in what these requirements are. Let’s take a look at what’s involved.
Vacant Land: Just Like It Sounds
With vacant land, there are no buildings on the property. But that doesn’t mean there are no exposures. Landowners and property investors have a liability risk, as they are responsible for incidents on the property. This exposure can impact their investment and future development plans if the proper insurance program isn’t in place. Typically, if there are plans for developing the land and financing is required, the lender will request that the owner purchase Liability insurance. Even if there is no financing and the land is owned outright, Liability insurance is critical.
Vacant Liability coverage responds to third-party claims involving premises liability, medical payments, and defense costs if a lawsuit arises. Any construction activities are excluded. Once construction begins on the property, a Builder’s Risk policy will provide property coverage.
Vacant Building: No One’s Inside
A vacant building, on the other hand, can be a home that is up for sale or being leased where the residents have already moved out, a building coming off a Builder’s Risk policy, or a vacant structure (office building, warehouse, retail space) that’s in between tenants or undergoing renovations. In this case, the owner of the vacant building should have Property and Liability insurance in place.
When a property is vacant, there is often no one to maintain it and to spot anomalies such as utility complications, broken or leaky pipes, gas leaks, and other issues. As a result, these complications can quickly escalate, resulting in costly repairs or even total losses without the owner’s knowledge. Furthermore, while there may not be people walking in and out of the vacant building daily, anyone who wanders into or around the vacant property and is injured can still sue the property owner, leaving them financially vulnerable to costly liabilities.
The policy term for Vacant Property insurance is typically for a specific period and will depend on whether it’s a residential or commercial building. An insurance program should include Property coverage for the building and contents to protect against hazards such as fire, vandalism, and water damage, along with premises liability. It’s important to note that a standard Homeowners policy will not provide adequate coverage once the home becomes vacant. Commercial Property policies also exclude coverage for certain hazards, such as vandalism, water damage, and theft, if the building is vacant for a specific period of time.
Your clients should understand the type of insurance policies needed to address their exposures for vacant land and buildings and to advise you of any changes to the status and occupancy of their properties.
Note: The terms and conditions of the policies will dictate whether coverage exist and the nature of any potential benefits.